Lerach to Leave Law Firm As He Tries to End Probe

California plaintiff's lawyer William S. Lerach yesterday told his partners that he would resign this week to resolve a long-running criminal investigation into his tactics and business practices.

With Lerach's departure, his name will be stripped from Lerach Coughlin, the 180-lawyer San Diego firm he founded three years ago. Among the most successful class- action lawyers in a generation, Lerach and his team secured $7.3 billion for Enron investors.

In an e-mail to colleagues obtained by The Washington Post, Lerach acknowledged unspecified "mistakes" and said that his decision to step aside "will ensure continuity and stability for the hundreds of clients who benefit from your stellar work. This will end the investigation."

In recent weeks, Lerach, 61, has been in increasingly serious plea negotiations with federal prosecutors in Los Angeles, according to two sources familiar with the talks. Government lawyers for seven years have been investigating whether he and colleagues paid millions of dollars to clients in exchange for their agreeing to be plaintiffs in securities lawsuits against some of the nation's largest companies.

Prosecutors gained substantial momentum in July after David J. Bershad, who practiced law with Lerach for decades at the New York firm Milberg Weiss and who managed the finances of the law firm, agreed to plead guilty to a conspiracy charge and cooperate with investigators. In court papers, Bershad implicated "senior partners" of the firm in a scheme to hide from judges and others more than $11 million in kickbacks to select clients.

Lerach and his former partner Melvyn Weiss, another target of the investigation, this year rejected a government proposal under which each man would serve at least three years in prison, the sources said. Neither Lerach nor Weiss has been charged with a crime, but prosecutors told a judge at a recent court hearing that they would announce a decision about whether to add defendants and charges by late September.

A plea deal or indictment of Lerach would be wrapped into a broader case against the Milberg Weiss law firm. The firm is contesting related criminal charges the government filed against it last year. Plea discussions between the firm and prosecutors have been hot and cold, faltering in part because of the legal stance of Weiss, who parted bitterly with Lerach in 2004. Defense lawyers for Weiss and the Milberg Weiss law firm did not return calls yesterday afternoon.

As recently as last week, Lerach's new firm was continuing its aggressive legal approach on behalf of investors, suing mortgage lender Countrywide Financial over allegedly false statements about the health of its business.

"We will not pause in our ongoing advocacy for shareholders and consumers," Patrick Coughlin, a co-founder of the firm, said in a written statement.

In the e-mail yesterday, Lerach took parting shots at his political enemies more than discussed the investigation that pushed him aside.

He and his colleagues donated millions of dollars to Democratic campaigns. "Now that I have outlasted Karl Rove, John Ashcroft and Alberto Gonzalez [sic], it is time for me to retire," Lerach began his e-mail message. "I've also always understood that when you spend decades challenging powerful interests, the powerful interests will fight back with a vengeance."

He also borrowed a line from Theodore Roosevelt: "It is far better to dare mighty things to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much because they live in the gray twilight that knows not victory nor defeat."

One of his most famous corporate targets, Enron founder Kenneth L. Lay, cited a similar quote from Roosevelt during his criminal trial last year. Lay died weeks after he was convicted on conspiracy and fraud charges stemming from his leadership of the Houston energy trader.